Major
Price
Movements
Foreign
selloff
creating buying opportunity to locals...
Trading activity in the Colombo Bourse during the week was
marked by two distinct trends bearing major influence over
activity……………………………………………
Pg07

Table below shows the members who have qualified to be a
part of ‘Asia Securities Research’s Billion Rupee Club’.
Pg 03

Company
Bimputh Lanka Investments

(ASI)
6,300

Price
41.7

+/-LKR
6.7

+/- %
19.1

Company
Asia Asset Finance

Volume
77,765,487
33,940,913

1.3

0.2

18.2

Dialog Axiata

Kuruwita Textiles

21.7

3.3

17.9

Vidulanka

9,744,814

Chemanex

82.9

9.9

13.6

Orient Garments

8,710,353

Sri Lanka Telecom

42.5

4

10.4

John Keells Holdings

8,589,631

Infrastructure Developers

89.5

-30

-25.1

SMB Leasing Plc(X)

8,447,408

Printcare

28

-5.8

-17.2

SMB Leasing Plc

5,462,530

PC House

0.5

-0.1

-16.7

Expolanka Holdings

4,910,287

Blue Diamonds (X)

1.1

-0.2

-15.4

Piramal Glass

4,365,662

Sierra Cables

1.7

-0.3

-15.0

Free Lanka Capital Holdings

3,974,886

Weekly Review by Asia SecuritiesResearch

13 February 2014

Continuous foreign selling on blue chips drags down the market….
Sri Lankan stocks extended its bearish momentum during the week along with foreign selling bringing the week’s
cumulative net foreign out flow to c.LKR1.1bn . The ASI lost 58.3 points WoW to close at 6,083.4 points (-0.9%), whilst
the S&P SL20 Index lost 43.5 points WoW to close at 3,325.8 points (-1.3%). Indices dipped mainly on the back of losses
made by John Keells Holdings (-3.3% WoW), Commercial Bank of Ceylon (-3.3% WoW), Dialog Axiata (-2.1%
WoW), DFCC Bank (-2.7% WoW) and Bukit Darah (-1.6% WoW)
Colombo bourse was predominately on a downward momentum, whilst few long-standing foreign funds such as Janus
Overseas, Franklin Templeton, Morgan Stanley etc. continued to partially sell their holdings in few blue-chip counters
brining the YTD net out flow to over LKR 3.3bn, whilst few local institutions and high net worth individuals were on the
buying side. However, as a result of these large-scale transactions daily turnovers and volumes were given a boost resulting
in week’s average daily turnover and volumes to be c. LKR 1.13bn and 60.2mn respectively.
Conglomerate John Keells Holdings that emerged as the highest turnover contributor during the week witnessed foreign
selling during the week when long standing Janus Fund sold few blocks from its previous intakes, which was bought buy
few high profile local investors. The counter accounted for c. 42.5% of the week’s total turnover tally with a contribution of
LKR 1.92bn. Dialog Axiata that recorded the second highest turnover also witnessed a crossing where 19mn shares
changed hands at LKR9.20, where foreigners were the selling party. In addition, Commercial Bank witnessed a few
crossings over the week where foreign investors were on the selling side.
In addition, amongst the other counters that witnessed few crossings over the week were, Textured Jersey, Orient
Garments, Asia Asset Finance, Lanka IOC, Distilleries Company, Sampath Bank, Hatton National Bank, Vallibel
One and Vidulanka.
Highest volumes recorded during the week were Asia Asset Finance emerged as the highest volume traded counter for the
week with a cumulative share volume of c. 77.8mn shares followed by Dialog Axiata, Vidulanka, Orient Garments. In
addition, most of the corporates by except for banking counters have released their 3 rd quarter financials, which has shown
mixed results. Meanwhile, Hayleys Plc subsidiary Alumex Ltd, announced the CSE of its LKR 839.0mn IPO which is the
second IPO for the year 2014 where 59.9mn ordinary voting shares at LKR 14.0 will be issued. The issue will comprise of
two tranches where c.17.9mn shares will be in the form of an offer for subscription and c.42.0mn shares in the form of an
offer for sale. The date of opening of the subscription would be on the 6th of March 2014.
The week saw foreign purchases amounting to LKR 900.5mn whilst foreign sales amounted to LKR1,978.7mn. Market
capitalisation stood at LKR 2,539.5bn and the YTD performance is 2.9%.

A member of Asia Capital Group

2

Weekly Review by Asia Securities Research

13 February 2014

Colombo Bourse’s Billion Rupee Club
Table below shows the members who have qualified to be a part of ‘Asia Securities Research’s Billion Rupee Club’. The
eligibility criteria lie with their earnings reaching LKR1 bn mark. The list will be refreshed on a quarterly basis identifying
the new qualifying members whilst eliminating the disqualifying.
Company

Analysis of Warrants Listed on the CSE
The below table depicts a comparison of the warrants trading price with its intrinsic value (derived through the Black
Scholes Call option valuation method). The 6th column to the right depicts the difference between the intrinsic value and
the traded price. Hence, the positive figures would explain the potential for the respective warrant to further appreciate.
(Price to be constant). However, it is noted that the intrinsic value is derived based on the current value of the underlying
stock price, its volatility, period to maturity and the risk free rate. Hence, any adverse movement of the mentioned
assumptions would have an adverse impact on the warrant value, and any favourable movement would positively impact
the warrant value (E.g.: if in case the asset price appreciates from the existing, it would invariably increase the value of the
warrant.Thus, the negative value would denote that the warrant is overvalued at the current price (assuming the underlying
stock.)
Exercise
price
CLPL-W-0013
CLPL-W-0014
GREG-W-0006
REEF-W-0019
JKH-W-0022
JKH-W-0023

Oil
Crude oil prices advanced during the week after Energy Information Administration reported that inventories at Cushing
refinery in Oklahoma dropped by 2.67m barrels last week. Further upward thrust was witnessed in the prices after reports
from China indicating that crude oil imports during the month of January increased 12% YoY to a record high of 28.15m
metric tons. However, price gains were caped during the latter part of the week as investors speculated that the price gains
during the week were too high and after crude oil supplies rose higher than analysts’ expectations.

Gold
Gold extended its rally from last week after the new Federal Reserve Chairman Janet Yellen indicated that more work
needs to be done to bring the labour market on track. The data released last Friday showed that recruitment for the month
of January came in at 113,000, which was well below the analysts’ consensus median estimates of 180,000. Meanwhile,
analysts are expecting the data to be released today on US retail sales to show a slow down. On the back of these
developments, the price of gold gained as much as 2.2% WoW.

5
A member of Asia Capital Group

Weekly Review by Asia Securities Research

13 February 2014

Copper
Copper price advanced during mid-week after China posted better than expected trade data for the month of January. The
data indicated that both exports and imports strengthened during the month of January. Further upward thrust was
witnessed in copper price after China’s customs disclosing that the nation had imported a record 536,000 tons of copper
during the month of January. On the back of these developments, the price of copper for delivery in 3 months advanced as
much as 0.4% WoW.

Forex Markets
The USD dropped against the JPY during the week on expectation that the data to be released today on US retail sales may
show a slowdown. Meanwhile, the AUD dropped against the USD after the Australian government indicating that the
nation’s unemployment rate had risen to a 10 year high. Meanwhile, the JPY advanced against some of the Asian
currencies after the emerging market rout boosted the demand for JPY which is perceived as a safe haven.
Source: Bloomberg, The Wall Street Journal

6
A member of Asia Capital Group

Weekly Review by Asia Securities Research

13 February 2014

Conclusion
Foreign selloff creating buying opportunity to locals...
Trading activity in the Colombo Bourse during the week was marked by two distinct trends bearing major
influence over activity levels. The partial selloff from the foreigners which continued from the previous week was
tied with a degree of uncertainty among the local investors whether to cash in from the opportunity created by
lowered indices due to exit of foreign investments; these can be cited as the two major trends which largely shaped
the direction of the market during the trading week and they are most likely to influence activity levels during the
week to follow. The uncertainty among the local investors was mainly driven by the less clear state of affairs
created by the foreign selloff amidst considerably improved earnings results of conglomerates in 4Q2013 coupled
with falling market interest rates and the rupee remaining stable compared to depreciation pressures faced by other
emerging economies. Under this backdrop, the locals adopted a ‘wait and see approach’ while selling pressure
from foreigners eased towards the end of the week, which in tandem drove the market turnover well below the 12month average during the final two days of the trading week.
The partial exit of the foreigners from the equity market was triggered by the reverse flow of foreign funds from
emerging markets towards mainly the U.S. and the developed markets in general which has become a trend driven
less by reason and not due to a relative weakness in the domestic economy against that of the regional peers. The
interesting aspect to consider in this regard is that during the week ended on 5th February 2014 government
securities recorded a surprising LKR 15.5 billion foreign inflow even as the stock market saw approximately LKR
3 billion drawn out by foreigners during the same period. This reveals the fact that the foreign selloff from equities
was merely a precautionary measure and has not caused a net outflow of foreign funds from the economy although
there was a net foreign outflow from equities. This is reflected by the continuous stability shown by the Sri Lankan
rupee coupled with the dip in market interest rates and treasury yields despite foreign selling from equities.
In this light, we are of the view that foreign investors moved from equities and other forms of cash holdings to
government securities given that the latter is less volatile and more reliable compared to equities in periods of
baseless uncertainty. This is to further indicate that the U.S. Fed’s decision to taper its QE programme is having no
impact on the key fundamentals of the domestic economy and hence we are of the view that it is an ideal time for
the locals to take advantage from the lowered market indices caused by foreign activity. This is strengthened by the
improvement of earnings posted by conglomerates during the final quarter of 2013 coupled with the fact that
balance of payments position of the economy has stabilised considerably at the start of the New Year which
reduces the room for exchange risk associated with foreign activity within the economy.
.

7
A member of Asia Capital Group

Weekly Review by Asia Securities Research

13 February 2014

Focus on Investment – Key Buys
Manufacturing
X – LKR 28.50

LKR

Tokyo Cement
N – LKR 34.70

TKYO, being the joint market leader in the cement industry, has its
grinding facility located in Trincomalee, ideally located for the
rebuilding boom. TKYO, a direct beneficiary of construction sector
upturn, is in a strong position to take advantage of increasing demand
in current excess capacity. TKYO completed a 10 MW bio mass power
plant which provides them significant cost advantage together with
additional boost to top line.

35
33
31
29
27
25
23
21

LKR

TKYO

23
22
21
20
19
18
17
16

TKYOX

Banking& Finance

180

LKR

LB Finance
N – LKR 99.00

160

LB Finance is a leading registered finance company engaged in
Leasing and Hire Purchase business. Company is operating with a
total asset base of LKR 54bn as at Mar 2013, and an island wide
branch net work of 89. With satisfactory liquidity levels and capital
adequacies, company is poised to take advantage in any growth in
credit demand.The projected decline in interest rates in the economy
and rising demand for credit is to provide many opportunities for these
business models. Further company would stay ahead of other finance
companies consequent to its strong fundamentals, high interest
margins, high ROE etc...Therefore we rate LFIN as a worthwhile
investment with a time span of medium to long term.

120
100
80

LFIN

Construction
24
22
20
18
16
14

LKR

Access Engineering
N – LKR 22.80

140

Access Engineering (AEL) is a total solutions provider in the
construction industry with activities ranging from engineering designs,
geotechnical services, piling and horizontal drilling. The firm is the
premiere choice for large & specialized construction activities such as
roads & highways, ports & marine, water & waste management, whilse
its clientele includes government entities such as the Road Development
Authority (RDA), Urban Development Authority (UDA) and Board of
Investments (BOI) as well as private sector firms such as Dialog Axiata,
Taisei Corporation etc.. The firm is well poised to capitalize on the
construction boom taking place in the Island with its proven track
record.

AEL

8
A member of Asia Capital Group

Weekly Review by Asia Securities Research

13 February 2014

Focus on Investment Contd...
180
170
160
150
140
130
120

Banking & Finance
X- LKR 121.00

LKR

Hatton National Bank
N-LKR 156.00

HNB is the second largest private commercial bank with a total asset
base of LKR459.4bn as at end 2012, and number one private bank in
terms of branches with a strong network of over 247. HNB which has a
relatively larger retail deposit base is projected to enjoy higher interest
spreads and would also benefit from the growth in SME lending. With,
the expected drop in interest rates in the economy consequent to the cut
policy rates and lifting the credit ceiling that prevailed during 2012,
coupled with the strong capital adequacies; the bank is expected to
continue its growth momentum. Therefore considering these factors we
rate HNB as a mid to longer term investment.

HNB
140
130
120
110
100
90
80

LKR

.

HNBX

Banking& Finance

248
228
208
188
168
148
128

LKR

Sampath Bank
N – LKR 167.00

The bank expects a moderate pace on branch expansions for 2013 as it
has achieved sufficient coverage while aggressively developing and
promoting electronic banking channels. As the pioneer in blending IT
with banking, the company will revamp its existing products and
innovate new customer focus products. The bank is well poised to take
advantage of the current economic developments taking place in the
country. The credit ceiling that existed during 2012, limited the growth
of LCB’s, including Sampath bank. However, the removal of the ceiling
from 2013, and the anticipated drop in interest rates coupled with
SAMP’s strong capital adequacies, would enable the bank to enter
another growth phase in its performance. Therefore considering these
factors we rate SAMP as a mid to longer term investment.

SAMP

9
A member of Asia Capital Group

Weekly Review by Asia Securities Research

13 February 2014

Stock Exchange Announcements
As at 13th February 2014
Dividends announcements

LAND AND PROPERTY
C T LAND
CARGO BOAT
CITY HOUSING
CEYLINCO SEYLAN
COLOMBO LAND
COMMERCIAL DEVELOP.
EAST WEST
EQUITY ONE
EQUITY TWO
HUEJAY
KELSEY DEVELOPMENTS
ON'ALLY HOLDINGS
OVERSEAS REALTY
PROPERTY DEVELOPMENT
SERENDIB LAND
YORK ARCADE
SERANDIB ENGINEERING GROUP
TOUCHWOOD

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